GENEVA, Jan 31 (Reuters) - U.N. human rights investigators
called on Israel on Thursday to halt settlement expansion and
withdraw all half a million Jewish settlers from the occupied
West Bank, saying that its practices could be subject to
prosecution as possible war crimes.

A three-member U.N. panel said private companies should stop
working in the settlements if their work adversely affected the
human rights of Palestinians, and urged member states to ensure
companies respected human rights.

"Israel must cease settlement activities and provide
adequate, prompt and effective remedy to the victims of
violations of human rights," Christine Chanet, a French judge
who led the U.N. inquiry, told a news conference.

The settlements contravened the Fourth Geneva Convention
forbidding the transfer of civilian populations into occupied
territory and could amount to war crimes that fall under the
jurisdiction of the International Criminal Court (ICC), the
United Nations report said.

"To transfer its own population into an occupied territory
is prohibited because it is an obstacle to the exercise of the
right to self-determination," Chanet said.

All U.N. member states must comply with their duty under
international law on the settlements, she said. "We have
highlighted states' responsibility because the facts we denounce
are known. The problem is nobody is doing anything about it."

U.N. Secretary-General Ban Ki-moon reacted to the inquiry's
findings by repeating his position that "all settlement activity
in the occupied Palestinian territory, including East Jerusalem,
is illegal under international law," according to a statement.

In December, the Palestinians accused Israel in a letter to
the United Nations of planning to commit what they said were
additional war crimes by expanding Jewish settlements after the
Palestinians won de facto U.N. recognition of statehood, and
said Israel must be held accountable.

Israel has not cooperated with the probe set up by the Human
Rights Council last March to examine the impact of settlements
in the territory, including East Jerusalem. Israel says the
forum has an inherent bias against it and defends its settlement
policy by citing historical and biblical links to the West Bank.

Israel's foreign ministry swiftly rejected the report as
"counterproductive and unfortunate." Palestinians welcomed the
report, saying it vindicated their struggle against Israel.

"The only way to resolve all pending issues between Israel
and the Palestinians, including the settlements issue, is
through direct negotiations without pre-conditions.
Counterproductive measures - such as the report before us, will
only hamper efforts to find a sustainable solution to the
Israel-Palestinian conflict," Israel's Yigal Palmor said.

But Hanan Ashrawi, a senior PLO official, told Reuters in
Ramallah: "This is incredible. We are extremely heartened by
this principled and candid assessment of Israeli violations."

The independent U.N. investigators interviewed more than 50
people who came to Jordan in November to testify about
confiscated land, damage to their livelihoods including olive
trees, and violence by Jewish settlers, according to the report.

"The mission believes that the motivation behind this
violence and the intimidation against the Palestinians as well
as their properties is to drive the local populations away from
their lands and allow the settlements to expand," it said.

"CREEPING ANNEXATION"

About 250 settlements in the West Bank, including East
Jerusalem, have been established since the 1967 Middle East war
and they hold an estimated 520,000 settlers, according to the
U.N. report. The settlements impede Palestinian access to water
and farmland.

The settlements were "leading to a creeping annexation that
prevents the establishment of a contiguous and viable
Palestinian state and undermines the right of the Palestinian
people to self-determination," it said.

Chanet said firms working in the territories must uphold
human rights. France's Veolia, which built Jerusalem's
light rail linking the western side of the city to the eastern
side annexed by Israel after the 1967 war, won a case brought
against it in a Nanterre court, whose ruling that it had not
violated the Geneva Conventions is now on appeal, she said.

After the General Assembly upgraded the Palestinians' status
at the world body, Israel said it would build 3,000 additional
settler homes in the West Bank and East Jerusalem - areas
Palestinians want for a future state, along with the Gaza Strip.

"I think that maybe it will help in the negotiation just to
see that now, and especially when Palestine has been recognised
as a state, things might change. Maybe, we hope. And now there
is a new government in Israel," Chanet said.

"So things are moving. So we hope that our report will be in
the middle of this movement."